Let's reshape it today. Corning Gorilla Glass TougherTogether. ET India Inc. ET Engage. ET Secure IT. Six people convicted of white-collar crimes apart from Rajat Gupta Rajat Gupta, the high-profile former chief of McKinsey, became a free man again on March 11 after a two-year prison sentence in the US in an insider-trading case.
From Satyam to Lehman Brothers, five famous corporate collapses The Indian cricket team's epic slide from to wasn't unlike these corporate downfalls. British bankers to be sentenced in Enron case in US Three British bankers are to be sentenced Friday for their roles in a fraudulent scheme involving collapsed US energy company Enron.
All News Videos Photos. He's also speaking more to the media as he did to Fraud Magazine. FM: Tell me about your first job out of college.
When my wife-to-be and I arrived in Chicago, the first thing we did was unpack our TV so we had something to listen to, and there was a newsflash that Continental had failed. Six weeks later I was able to start at Continental, which was operating during its reorganization. FM: How did you come to work for Enron? AF: Long story short — I received a call from a headhunter who'd learned what I was doing at Continental.
I was working on a relatively new type of financing and there were very few people in the country doing it at that point in time. He'd learned that I had a connection to Houston, so he put it all together, and that's exactly what Enron was looking for at that time. FM: Did you start in the lower echelons of Enron or did they bring you in in a high position?
AF: No, no, I wasn't brought in at a high level. At Enron each of the operating companies e. Enron had just set up a trading and finance company, which was headed by Jeff Skilling, and they needed a person to do off-balance sheet financing.
And the specific type of off-balance sheet financing they wanted to do was very analogous to what I was doing at Continental Bank — that's why they hired me. But I came in at a relatively low level. It was an operating company, not a corporate level, and I was just a finance guy.
FM: What do you think made you stand out to the executives during those seven years? AF: I think my ability to do structured financing, to finance things off-balance sheet and to find ways to manipulate financial statements — there's no nice way to say it.
Like I said at the conference, I was good at finding loopholes; that's a nicer way of saying manipulating the financial statements or being misleading, and I was good at it. I'm not proud of it now, but I was very proud of it at that time. FM: When you went to work for Enron — and let's focus on when you were in those first positions — what were your first impressions? What did you think about Enron as a company? AF: I thought Enron did kind of questionable accounting.
I was hired in November of and I said to the guys, to Jeff Skilling, that I would like to start January 1 so I could take the month off, spend it with my family — we had a vacation planned. And he said, "No, no, I need you down here immediately; you have to get something off our balance sheet by year-end" … Literally less than 30 days to do a financing transaction.
I've never been at the company before, and I hadn't done this particular type of financing. So, we worked very hard to get the deal done, and on about December 30 we signed all the documents, and the accountants and attorneys approved it, and we were all very happy about it.
I didn't think I could get it done, but we got it done. On January 2, I'm walking down the hall at Enron, and I bump into the head of accounting for this operating company and I made some innocuous comment like, "It sure is good that we got that deal done," and he said, "We didn't really get it done. We signed the documents, I was there. FM: What did materiality mean in this instance? AF: So, basically it's the accountant saying that even if we don't think it's quite correct, it's small enough that we aren't going to spend any time worrying about that.
And I went back to my office, and I was stunned because they told me it worked, and now I'm learning it didn't really work, and I remember thinking to myself, "How could they do that? How could they just ignore it? But I didn't, and that was my failing — not Enron's failing, no one else's.
Instead I embraced it, and I figured that I'd find ways to be good at it. FM: Interesting. So those were your impressions, but I'm also curious to know what you think they thought of you when you first came to the company, maybe initially and after these first deals. AF: I can't tell you what was in their heads, but they kept giving me promotions and raises and bonuses. FM: So, then what led to the beginnings — the beginning of the end, I guess you could say?
What led to the beginning of the structured financing that you spoke about in your session? What led to the beginning of, I guess, the fraud itself? AF: It's a little difficult to say when the fraud started because it's better described as the aggregation of all of these deals, which were each maybe technically correct but also misleading.
We created something that was monstrously misleading, but any one of those deals alone wasn't necessarily considered fraudulent. The aggregation of the impact of the deals, however, was fraudulent, so I'm not sure at which point we crossed the line, where it became too big and too misleading. It's a bit of a gray area, but I will say this, and maybe this helps answer the question: When I first started doing these structured financing deals, there was clear economic benefit in doing the deals for the company.
It also may be that in addition to the economic benefit, there were financial reporting advantages to doing it. So, the accounting made the company look better, but the underlying transaction had an economic rationale; it made our financing less expensive.
It gave us greater access to capital — something like that. When you have reset your password, you can Sign In. Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards. Screen Name Selection. Only letters, numbers, periods and hyphens are allowed in screen names.
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